The Housing ATM
October 1st, 2008 by 
reality
The examples of “taking money out of the house” are everywhere, but this one is too archetypical not to mention. Needless to say, the owners are now underwater. Thanks to Irvine Housing Blog.
This property is a case study in serial refinancing and mortgage equity withdrawal.
- The property was purchased on 6/25/1998 for $360,000. There was a $288,000 first mortgage, a $54,000 second mortgage, and an $18,000 downpayment.
- On 11/8/1999, the property was refinanced for $436,000. In just over a year their $18,000 netted them $76,000.
- On 3/23/2004, they refinanced for $516,000.
- On 7/26/2004, they refinanced for $670,000.
- On 6/19/2006, they refinanced for $857,500.
- On 11/30/2007, the took out a stand-alone second for $350,000.
- Total property debt is $1,207,500.
- Total mortgage equity withdrawal is $865,500 including their downpayment.
Posted in Real Estate | 
October 1st, 2008 at 3:40 pm
This bailout plan is just an attempt to do the legendary “Helicopter Drop” according to wiki. I guess when all you have is a hammer, everything looks like a nail. Bernanke should be blamed when this too fails. Note it worked really well in previous instances of the GD and Japan:
http://en.wikipedia.org/wiki/Liquidity_trap
“Milton Friedman suggested that a monetary authority can escape a liquidity trap by bypassing financial intermediaries to give money directly to consumers or businesses. This is referred to as a money gift or as helicopter money. The term helicopter money is meant to portray the image of a central banker dropping money on people from a helicopter. Political considerations make it difficult for a monetary authority to grant the money gift, because individuals and firms not receiving free money will exert political pressure. The monetary authority must act covertly to give gift money to specific individuals or firms without appearing to give money away. During the Great Depression in the United States, the Federal Reserve offered to buy any gold at a price well above current market prices. This was essentially a money gift to gold holders. In Japan in the 1980s, the Bank of Japan began buying newly-issued common stock and bonds as a hidden money gift to firms.”